Retirees usually have a limited amount of money to spend during their golden years.
Unfortunately, some people make costly mistakes that can deplete their nest egg prematurely.
From giving away cash indiscriminately to refusing to embrace lifestyle changes, here are some surprising ways retirees waste their hard-earned savings.
1. Ignoring senior discounts
It’s a mystery why anyone would pay more than they need to, but retirees do just that when they ignore senior discounts.
Maybe they don’t realize how much these benefits can add up. Some retailers, for example, offer storewide discounts ranging from 5% to 20% on certain days.
2. Buying unneeded insurance
During a person’s working years, disability insurance can ensure someone has the cash needed to pay bills if they become sick or injured and can’t hold down a job.
However, it’s a waste of money to keep paying disability insurance premiums when you’re retired. The same goes for life insurance if you no longer have kids at home or a spouse whom you’re financially supporting.
In fact, there’s a long list of insurance products you could probably drop from your budget, as we illustrate in “9 Types of Insurance That Might Be a Waste of Money.”
3. Supporting grown children financially
Parents sometimes spend a lot of money to support their adult children. That’s money that retirees, particularly those with meager savings, really can’t afford to spend.
While it’s understandable that parents want to help their children, there are ways for you to lend a hand financially without paying their bills or handing over cash.
4. Maintaining two cars
Two cars are often a necessity for households in which two partners work.
However, retirees who have more flexible schedules may be able to easily get by with a single vehicle.
Transportation is one of the largest expense categories for retirees, according to federal data. Ditching the second vehicle can save money on insurance, gas and registration fees.
To further cut your costs, review these ways to save money on your remaining vehicle.
5. Refusing to downsize
More than one-third of spending in households led by someone age 65 or older goes to keeping a roof over everyone’s head, according to Bureau of Labor Statistics data.
You would think empty nesters might be keen to move to smaller, less expensive homes, but most don’t. In fact, 11% of those who move in retirement actually upsize to a bigger house, according to the 20th Annual Transamerica Survey of Retirees. An earlier study from Merrill Lynch-Age Wave found many who upsized their living arrangements cited a desire to have space for visiting family members to stay.
Retirees who are stretching their dollars should consider whether money on a bigger home is well-spent if the rooms remain empty for most of the year.
6. Insisting on brand-name medications
Medications are one of the items you should always buy as a generic, regardless of whether you’re a retiree.
The Food and Drug Administration says generic drugs are required to have the same active ingredients and strength as brand-name medications, and they can cost up to 85% less.
7. Donating to every charity that calls
Many retirees have big hearts and are quick to open their checkbooks whenever approached about a good cause. However, people living off savings should be careful that they don’t give away too much and jeopardize their ability to live comfortably in the years to come.
What’s more, older Americans are often targeted by scammers who may use fake charity appeals to get money.
8. Withdrawing from retirement accounts in a down market
The stock market wasn’t pretty in 2022. The only thing worse than watching the balance in your retirement fund drop is withdrawing money to lock in those losses. Making withdrawals in a down market early in retirement can be particularly detrimental to your nest egg because of something known as sequence of returns risk.
A Vanguard study illustrated that dramatically by comparing two hypothetical scenarios. In one, a person started making withdrawals in a bear market in 1973 while another began a year later in 1974. Assuming both withdrew the same amounts and had the same asset allocations, the first retiree would run out of money in 23 years while the 1974 retiree would have money to spare after 35 years.
If you find yourself hard up for cash during a bear market, try one of these strategies before pulling money from your retirement funds.
9. Investing too conservatively
Retirement can last a long time — 30 years or more for some people. Keeping your retirement funds in cash or a similar “safe investment” could backfire if the value doesn’t keep pace with inflation.
About 60% of those age 60 and older who participate in a workplace retirement plan don’t have enough money invested in equities, according to a John Hancock report. The investment firm recommends people of this age keep 40%-50% of their portfolio invested in equities such as mutual funds.
If that makes you nervous, consider a bucket strategy in which some money is set aside for short-term spending while other funds are invested more aggressively. A good financial adviser can guide you through the process.
10. Ignoring their health
Poor health doesn’t just affect your quality of life; it can cost you a significant amount of money as well. The average household headed by someone age 65 or older spent more than $7,000 on health care in 2021, according to government data. However, retiree costs are influenced by a person’s health condition.
A study published in 2020 by The Lancet Public Health journal estimates that more than $730 billion in U.S. health spending is the result of chronic conditions that could be prevented or minimized if people maintained a healthy weight, quit smoking, improved their diet and managed their blood pressure and blood sugar levels.
Don’t assume Medicare will pay for all your care either. The government’s health insurance plan for seniors has co-payment and co-insurance requirements, and there are some services it simply doesn’t cover at all.